As a result of the recent Kaikoura earthquake, aftershocks, and a heightened risk of more activity New Zealand’s major insurers have created a “restriction zone”, within which there are significant limitations on the availability of new insurance. This is largely due to international reinsurers imposing restrictions on the local insurance market. At the time of writing this zone and the limitations imposed vary by insurer, but broadly cover a region from Wairarapa to North Canterbury and everything in between (Christchurch, areas of Mid Canterbury and the West Coast are restricted by some but not others).
These restrictions may make it very difficult, if not impossible, for some people to arrange insurance for new construction work in the restriction zone, or to increase their sum insured. They also apply to other classes of asset insurance, such as house & contents, tools and equipment. The restrictions may also have a flow on effect on areas outside this zone, with additional information required and conditions imposed. Non-asset insurance such as liability & indemnity, life, medical & income protection are not affected. Motor vehicle cover is available, subject to some additional information. Some insurers will arrange new cover for existing customers, again with conditions.
After the Christchurch earthquakes a number of issues with contract works insurance arose, which are worth highlighting again now.
Demolition & removal of debris
Heavy demand for demolition & removal services following the Christchurch quakes caused a sharp spike in the cost of these services. Contract works insurance typically includes an allowance for these costs, but the default values in standard building contracts were not enough after an “area wide event” such as an earthquake. Make sure you allow enough in both your contract and insurance to cover these costs.
How is the natural disaster excess calculated?
Insurers all have different formulas for working out the claim excess after a natural disaster. It could be a percentage of the cost of the actual damage, or a percentage of the work completed when the claim occurs. It could even be a percentage of the total contract price! Your policy will describe which formula applies to you.
Who pays the excess?
After the Christchurch quakes it was impossible to secure contract works cover for a period of time. The first insurers to enter the market imposed hefty excesses for natural disaster claims, which placed substantial risk back on the contracting parties. Your building contract should specify who is responsible for paying the excess if a natural disaster insurance claim needs to be made. In general, this should not be the builder’s responsibility, but your contract needs to be clear on this point.
In a nutshell
The cost of the recent quakes, plus a heightened risk of damage from further aftershocks means some types of insurance could be unavailable or restricted for some time. You also need to consider whether the cover in your policy is adequate and your contract protects you properly in case there is another big one.